Legrand – 2023 Full-year Results

With building markets in retreat, Legrand turned in a very solid performance, meeting targets with sales up nearly 5% (organic growth and acquisitions), and record margins and free cash flow

 

Outstanding 2023 performance
Sales: +0.9%, i.e. +4.7% excluding exchange rates and Russia
Adjusted operating margin: 21.0% of sales
Rise in net earnings per share: +15.6%
Free cash flow: €1.6 billion, 18.8% of sales, up +53.0%
CSR roadmap achievement rate: 118% in 2023

Ongoing execution of strategic roadmap
5 acquisitions over a year, of which 1 announced today
Powerful fundamentals (innovation, pricing power, productivity)
Targeted investments in growth and cost structure optimization

2024 full-year targets
Sales growth (organic and through acquisitions) slightly positive (in low single digits)
Adjusted operating margin before acquisitions: 20.0% to 20.8% of sales

Capital Markets Day on September 24, 2024

 

Benoît Coquart, Legrand’s Chief Executive Officer, commented:
“With building markets that retreated during the year, we turned in another very satisfactory financial and extra-financial performance in 2023. This confirmed once again the relevance of Legrand’s growth and value creation model, along with our teams’ strong capacity to adapt and achieve results.

Sales growth, organic and through acquisitions, was nearly +5%, buoyed by:
– the outstanding showing of our faster expanding segments, including datacenters, energy efficiency solutions and connected products, as well as a rise in electrification around the world and increased use of electricity as a power source,
– deployment of numerous growth initiatives, including multiple new-product launches and commercial investments,
– the announcement of five new acquisitions during the year, including two in datacenters, a sector that now represents 15% of our total sales.

Our profitability indicators are at record highs—a showing unique in our industry—with adjusted operating margin at 21.0% of sales, free cash flow of €1.6 billion (or nearly 19% of sales), and net earnings per share up +16% over the year.

Our extra-financial performance was equally remarkable: in 2023, the second year of our three-year 2022- 2024 CSR roadmap, our achievement rate was 118%. For example, we reduced our direct carbon emissions (Scopes 1 & 2) by -39% over 2 years and increased the number of management positions filled by women to 29%.

Looking ahead to 2024, amid persistently difficult building markets and uncertain economic prospects, we are aiming for sales growth (excluding exchange rates and Russia). The Group will pursue growth and cost control initiatives whilst building on unchanged solid fundamentals that include innovative capacity, robust external growth, pricing power and cash generation.

Lastly, our next Capital Markets Day will take place on Tuesday, September 24, 2024.”

 

2024 full-year targets

In 2024, the Group will pursue the profitable and responsible development laid out in its strategic roadmap. Taking into account the world’s current macroeconomic outlook, with confidence in its model for creating integrated value, Legrand has set the following full-year targets for 2024: 

• low single-digit sales growth (organic and through acquisitions1 ); 
• an adjusted operating margin before acquisitions between 20.0% and 20.8%; 
• at least 100% CSR achievement rate for the third year of the 2022-2024 roadmap.

1 Excluding exchange-rate effect and impacts linked to the Group’s disengagement from Russia. For Russia, see Legrand press releases dated January 25 and October 12, 2023.

 

2023 financial performance

Key figures

 

Consolidated sales 

In 2023, full-year sales rose +0.9% from 2022 to reach €8,416.9 million.

Organic growth in sales was +2.7%, with +0.8% in mature countries and +8.5% in new economies. With building markets in retreat in most geographies, these figures testify to Legrand’s resilience driven by its faster expanding segments, pricing power, and strong commercial performance. 

The impact of broader scope of consolidation was +0.9%, including +1.9% from acquisitions and -0.9% reflecting the net impact of the Group’s disengagement from Russia. Based on acquisitions made as well as the effective sale of the Group’s Russian activities at October 4, 2023, the overall impact should be close in 2024 to +1.0% full year, of which close to +1.5% linked to acquisitions and -0.6% to the impact of disengagement from Russia. 

The exchange-rate effect added -2.7% to sales for the year. Based on average exchange rates in the month of January 2024, the full-year impact on 2024 sales would be close to -1%.

 

Changes in sales by destination at constant scope of consolidation and exchange rates by region:

 

These changes are analyzed below by region: 

Europe (41.4% of Group revenue): full-year growth at constant scope of consolidation and exchange rates was +6.0%, driven by strong growth in energy efficiency solutions, datacenters and connected products, despite a residential market that retreated in most geographies.

In Europe’s mature countries (35.7% of Group revenues), organic growth in sales came to +4.4% over the year, including +1.1% in the fourth quarter alone, with strong showings in countries including Italy, Spain, Germany and Belgium, and resilience in France, the United Kingdom, the Netherlands and Scandinavia. 

Sales in Europe’s new economies rose +17.2% over the year, including +16.7% in the fourth quarter alone, with strong full-year gains in Turkey.

North and Central America (38.6% of Group revenue): sales decreased by -2.0% at constant scope of consolidation and exchange rates over the year. 

In the United States (35.0% of Group revenue), sales declined -2.8% full year, including -6.2% in the fourth quarter alone. Over 12 months, this performance is the result of a sales decline in residential, offices and commercial buildings, amid strongly declining markets, partially offset by double-digit growth in sales to datacenters. 

In 2023, sales rose slightly in Mexico and sharply in Canada.

Rest of the World (20.0% of Group revenue): sales marked an organic rise of +5.7% over the year. 

In Asia-Pacific (12.6% of Group revenue), sales were up +8.6% in 2023, with a +12.2% increase in the fourth quarter alone. Growth over 12 months reflected very robust momentum in India and, despite a marked retreat in residential markets, an increase in China. 

In Africa and the Middle East (3.7% of Group revenue), sales rose +10.0% over the year, and +7.6% in the fourth quarter alone. This reflects solid performances recorded full year in both Africa and the Middle East. 

In South America (3.7% of Group revenue), sales decreased by -6.8% full year in a deteriorated economic environment, due in particular to Brazil. Revenue saw a -12.6% decline in the fourth quarter alone.

 

Adjusted operating profit and margin 

In 2023, adjusted operating profit came to €1,770.2 million, up +4.0% from 2022. This set adjusted operating margin at 21.0% of sales for the period. 

Before acquisitions (at 2022 scope of consolidation) and excluding Russia, adjusted operating margin for 2023 stood at 21.2% of sales, up +0.8 points from 2022. 

The full-year impact of acquisitions and disengagement from Russia on adjusted operating margin came to -0.2 points, linked solely to acquisitions. 

Over this period, record-high profitability confirmed once again the quality of Legrand’s business model. This reflected the combined impact of undiminished pricing power, solid cost control management, and high productivity, as well as selective investments in growth and significant restructuring costs.

 

Solid value creation and balance sheet 

Net earnings per share at December 31, 2023 were up +15.6% from 2022 at €4.33. 

Net profit attributable to the Group came to €1,148.5 million, up +14.9% from 2023 and equal to 13.6% of sales. This rise was due primarily to an increase in operating profit, the positive impact of financial results, and a corporate income tax rate of 25.9%.

Free cash flow came to 18.8% of sales over the period, to total €1,584.8 million, with a conversion rate1 of 138% of net profit attributable to the Group. 

The ratio of net debt to EBITDA2 stood at 1.0 on December 31, 2023. Legrand Group’s cash position came to €2.8 billion, and the maturity of gross debt was 4.5 years, with over 90% in fixed-rate instruments. 

Lastly, return on capital employed (ROCE3 ) after tax and excluding intangible assets resulting from stockmarket listing in 2006 was a high 14.7%.

 

 

2023 dividend and share buyback

Legrand’s Board of Directors will ask the General Meeting of Shareholders to be held on May 29, 2024 to approve the payment of a dividend of €2.09 per share in respect of 2023, a rise of +10% from 2022.

The ex-dividend date is May 31, 2024, with payment4 on June 4, 2024.

In February 2023, Legrand announced a share buyback program followed by cancellation of shares for up to €500 million over 18 months. By 2023 year-end, a total of €400 million had been repurchased in several tranches.

 

1 Free cash flow / Net profit attributable to the Group. 2 Based on EBITDA for the past 12 months. 3 Computed as follows: Operating profit after tax (with tax rates of 27.7% in 2022 and 25.9% in 2023) excluding the impacts from intangible assets linked to the 2002 global revaluation of Group assets (€-9.3m in 2022 and €-3.2m in 2023), divided by Capital Employed (Total Equity, Short and Long-term borrowings minus Cash and cash equivalents and Other investments) excluding net intangible assets linked to the Group global 2002 assets step-up (€668.9m in 2022, €669.2m in 2023). 4 This distribution will be made in full out of distributable income.

 

 

2023 extra-financial performance

2023 progress toward targets defined in the 2022-2024 CSR roadmap

In 2023, Legrand reached an achievement rate of 118% on the targets set for the second year of its 2022- 2024 CSR roadmap1 . Achievement rates on the 4 pillars underpinning the Group’s contribution to 10 of UN’s Sustainable Development Goals (SDGs) were as follows: 

• 125% on promoting diversity and inclusion, including a rise in the ratio of women in management positions (defined as Hay Grade 14+) to 29.1%, and extension of the “Gender Equality European & International Standard (GEEIS) Diversity” label to 9 new countries. This raised the share of employees working in Diversity & Inclusion-certified units to 67.5%, across 40 countries. 2023 also saw over 4,100 new opportunities (internships, work-based training contracts, and jobs) offered to early-in-careers. 
• 149% for reducing carbon footprint: the Group’s CO2 emissions (Scopes 1 & 2) were down -39% over 2 years at current scope, thus once again outperforming targets set for 2023 by far; and a total of 195 key suppliers committed to reducing their CO2 emissions by an average of -30% by 2030. 
• 89% on developing a circular economy, with an average use of recycled plastics and metals of close to 6% and more than 32% respectively, and 73% of Legrand’s sales include Product Environmental Profiles providing detailed information on the environmental impact of the Group’s offers. 
• 111% on being a responsible business, including over 6 hours of training for 95% of Group employees during the year, a steep decline in the frequency of workplace accidents, (-19% over 2 years), and 90% of total headcount covered by our extended Serenity On social insurance package.

1 For more information, see Legrand press release dated March 29, 2022.

Other CSR initiatives in 2023

Legrand’s CSR performance was recently recognized, in particular in the CDP score with: 

• An A- score for the CDP Climate Change 2023, recognizing Group’s commitments and achievements on climate, 
• An A rating as a company providing high quality information to its clients on climate topics and the status of climate engagement leader in 2023.

On October 6, 2022, the Group announced plans to double its energy-consumption reduction target to -15% between 2021 and 2023 (at constant scope). By year-end 2023, it had exceeded this goal, with a consumption reduction of -17%.

2023 achievements also included a strong increase in the use of renewable electricity, reaching 82% of electricity consumption by the end of 2023 and 28 Legrand sites now equipped with solar panels.

Lastly, the Group continued its active support to communities, including rescue operations and humanitarian relief following earthquakes in Morocco.

First international share ownership plan for employees

To recognize and promote employee engagement at all levels in rolling out the Group’s strategy, Legrand announced its first international employee share ownership program. 

No dilution will result since shares on offer will come from buybacks. The plan will be launched in the first half of 2024.

 

 

Growth and cost base management initiatives

Amid negatively oriented building markets (meaning for nearly 80% of Legrand’s sales), particularly in America, Europe and China, the Group pursued its strategy of fostering revenue and market share growth.

Numerous product launches throughout the year

2023 confirmed the Group’s innovative capacity, with a vast selection of products rolled out over the year: 

• For core infrastructure products, these included the wiring device ranges MatixGO (sustainable offer meeting CSR targets), Allzy (in India) and Qing Yi (aimed at the retail market in China); easy-toinstall Fasclic+ cable trays with new couplers; Starline Series-S Track busways for humid environments; The Natural Collection architectural and acoustic lighting in the United States; Vaddio Prime Shot and Zoom Shot professional cameras; as well as Vaddio Easy IP PCC video control systems; 
• For faster expanding segments, with Green’up One and Home electric vehicle charging stations, Linkeo DC/NX1 and Middle Atlantic Select Series IEC PDUs, Keor SPE RT convertible UPS systems and high capacity Cablofil cable management (datacenters), the NOVO Go mobile telecare range (assisted living, connected products), connected three-phase meters with Netatmo, Smarther AC with Netatmo connected thermostats, the Netatmo Smart AC Controller range (energy efficiency, connected products), the radiant LED advanced dimmer range or the Encelium Touchscreen Panel KX4 LCD lighting panels and controls (energy efficiency, United States), the Light’up digital and connected lighting management offer (small commercial buildings), the T4 wireless connected fire alarm (France), the Easy Kit connected door-entry system for the retail segment, and Uraproof V weatherproof emergency lighting (connected products).

Continued strategy of bolt-on acquisitions, adding €190 million to sales

Legrand actively pursued its external growth strategy with today’s announcement of the acquisition of MSS, a New Zealand company specialized in cable management. Based in Auckland, MSS has around 100 employees and reports annual sales of more than €10 million. This is the Group’s fifth acquisition this year, following Clampe

Teknica in Chile and ZPE Systems, Inc. in the United States. Together they represent acquired sales of around €190 million on a full year basis.

Strengthening presence in faster expanding segments

After further strong gains this year, the faster expanding segments (energy efficiency, datacenters and connected products) accounted for 36% of Legrand Group sales in 2023 and are on course to reach 50% in the medium term as planned.

More specifically, datacenters now represent 15% of total Group sales, with a unique leadership positioning as a white room specialist, with an offering well adapted to the emerging needs of the growing artificial intelligence industry.

Continued growth in operational performance and sustainable optimization of cost structures

Legrand is focused on pursuing initiatives to optimize cost structures while improving its operational performance. These efforts include in particular: 

• Optimization of the Group’s industrial footprint with, for example, in North and Central America the consolidation of 4 distribution centers and closing of 3 production sites in the United States, along with the opening of a new plant in Monterrey (Mexico); in the rest of the world, Legrand has continued to streamline operations in Brazil while ramping up its industrial footprint in India; 
• Boosting its innovative capacity with, for example, a double-digit rise in R&D staff in India, and now 20% of global R&D teams dedicated to software/firmware expertise; 
• Improved operational performance including stepped-up investment in Industry 4.0 (representing more than 10% of total 2023 industrial investments) which now covers all main manufacturing sites. Product platforms are also being deployed worldwide.

 

 

Consolidated financial statements for 2023 were adopted by the Board of Directors at its meeting on February 14, 20241 . These consolidated financial statements, a presentation of full-year results for 2023, and the related teleconference (live and replay) are available at www.legrandgroup.com.

 

KEY FINANCIAL DATES:

• 2024 first-quarter results: May 3, 2024 “Quiet period2 ” starts April 3, 2024 
• General Meeting of Shareholders: May 29, 2024 
• Ex-dividend date: May 31, 2024 
• Dividend payment: June 4, 2024 
• 2024 first-half results: July 31, 2024 “Quiet period2 ” starts July 1, 2024 
• Capital Markets Day: September 24, 2024

 

 

Calculation of working capital requirement

 

Calculation of net financial debt

 

Reconciliation of adjust

ed operating profit with profit for the period

 

 

Reconciliation of EBITDA with profit for the period

 

 

Reconciliation of cash flow from operations, free cash flow and normalized free cash flow with profit for the period

 

 

Scope of consolidation